Final Results

RNS Number : 4215L

Pacific Horizon Investment Tst PLC

06 September 2019

 

RNS Announcement: Preliminary Results

Pacific Horizon Investment Trust PLC

Legal Entity Identifier: VLGEI9B8R0REWKB0LN95

Regulated Information Classification: Additional regulated information required to be disclosed under the laws of a Member State of the European Union.

Unaudited Preliminary Results for the year to 31 July 2019

The following is the unaudited preliminary statement for the year to 31 July 2019 which was approved by the Board on 5 September 2019.

Chairman's Statement

Performance

In the year to 31 July 2019, the Company's net asset value per share ('NAV') declined by 1.9%^*, compared to a 4.2%^* rise in the MSCI All Country Asia ex Japan Index in sterling terms. The share price declined by 11.8%^* resulting in the shares ending the period at a 7.1% discount having been at a 3.3% premium a year earlier.

Most of the NAV underperformance against the comparative index occurred in the first half of the Company's financial year. As reported in the Interim Report, this was caused by cyclical macro-economic headwinds driving valuations and near-term earnings lower; this particularly affected growth stocks. In addition, there were several stocks in the portfolio whose specific business models were challenged and disrupted faster than the managers expected, or where the threat of greater competition came sooner than the managers originally anticipated. More recent returns continue to be volatile, driven predominantly by investor sentiment in markets. Nonetheless, the Board and Managers continue to believe that investing in growth stocks across the region offers prospects for superior returns over the long term. The Managers' Review below contains a more detailed explanation of the Company's performance.

Over the second half of the year, the Company's NAV increased by 15.4%^* and the share price rose by 10.0%^*, compared to a 9.1%^* rise in the comparative index. The share price failed to keep pace with the rise in the NAV mainly as a result of a large institution placing a sell order close to the Company's year end.

Tender

At last year's Annual General Meeting ('AGM') shareholders approved the authority for the Company to hold a performance-based tender for up to 25 percent of the Company's issued share capital if the Company's NAV total return failed to exceed the total return of the Company's comparative index by at least 1% per annum over a three year period to 31 July 2019 on a cumulative basis. It is therefore pleasing to report that over this three year period, the Company outperformed the comparative index by 3.1 percentage points on an annualised basis and the tender offer will therefore not take place.

	3 Years to 31 July 2019*	Annualised Return Over 3 Years*
NAV Total Return	54.3%	15.5%
MSCI All Country Asia ex Japan Index Total Return (in sterling terms)	42.0%	12.4%

Over the summer months, members of the Board met with a number of larger shareholders from amongst the private wealth management sector and concluded that, as the longer-term performance is satisfactory, it would not be in the interests of the Company to put in place another similar tender process. Should performance be unsatisfactory, there is an opportunity for shareholders to express their views at the Company's next Continuation Vote which will take place as part of the business of the 2021 Annual General Meeting.

Issuance, Share Buy-backs and Treasury

Over the course of the year, a total of 700,000 shares, 1.2% of the shares in issue at the start of the Company's financial year, were issued at a premium to NAV when demand could not be satisfied from existing investors. As in previous years, your Board is seeking shareholder approval at the forthcoming AGM to renew the 10% non-pre-emptive issuance authority. Issuance would continue to be undertaken only at a premium to NAV, thereby avoiding dilution to existing investors. In the event that this authority is utilised, it has the effect of enhancing NAV per share, improving liquidity in the Company's shares and reducing the per share operating expenses.

At the forthcoming AGM, the Board will also be asking shareholders to renew the authority to repurchase up to 14.99% of the outstanding shares on an ad hoc basis, either for cancellation or to be held in treasury, and also to permit the re-issuance of any shares held in treasury. The Board intends to use the buy-back authority opportunistically, taking into account not only the level of the discount but also the underlying liquidity and trading volumes in the Company's shares. This approach allows the Board to seek to address any imbalance between the supply and demand for the Company's shares that results in a large discount to NAV whilst being cognisant that current and potential shareholders have expressed a desire for continuing liquidity.

The Board also believes that the Company would benefit from both the flexibility of holding any shares that are bought back in treasury and the consequent ability to re-issue these shares in the circumstances described above.

Management Fee

During the year an amendment was made to the management agreement, with the agreement of a reduction from 0.95% to 0.75% on the first £50 million of net assets as of 1 January 2019. The annual management fee payable by the Company is now charged at a rate 0.75% on the first £50 million of net assets, at 0.65% on the next £200 million of net assets and at 0.55% on the remaining net assets. The fee will continue to be calculated and paid on a quarterly basis. Ongoing charges for the financial year were 0.99% compared to 1.02% for the prior year.

Earnings and Dividend

There was a small surplus of 0.01p (0.60p deficit in 2018) in earnings per share this year and consequently no final dividend is being proposed. As highlighted in past reports, investors should not consider investing in this Company if they require income from their investment.

Gearing

Gearing is achieved through the use of bank borrowings. At present the Company has a multi-currency revolving credit facility with The Royal Bank of Scotland for up to £30 million, of which £20 million was drawn at 31 July 2019, split between GBP and USD.

The Board sets the gearing parameters within which the managers are permitted to operate and these are reviewed at each Board meeting. At present, the agreed range of equity gearing is minus 15% (i.e. holding net cash) to plus 10%. At the year end, invested gearing was 8.3%, compared to 7.9% at the start of the year.

Unlisted Investments

Last year, shareholders approved a change in the Company's Investment Policy, permitting the Managers to invest up to a maximum of 10% of total assets in unlisted securities (such asset value being calculated at the point of initial investment). At the time the portfolio had four unlisted investments accounting for 1.6% of total assets. Over the course of the year, no new unlisted investments were made and NIO, the Chinese electric vehicle developer and manufacturer, listed on the New York Stock Exchange. As a consequence, the Company held three unlisted investments as at 31 July 2019, accounting for 1.3% of total assets: Philtown Properties (nil%), a holding inherited following its spin-out from RFM Corp of the Philippines in 2009; JHL Biotech (0.4%), a Taiwanese biotech which was taken private with a view to listing in Hong Kong; and a JHL Biotech Convertible Bond (0.9%) issued as part of its de-listing.

Governance and Stewardship

The Board is very aware that shareholders expect good governance. Our Managers, Baillie Gifford, adopt a position of supportive and constructive engagement with those companies whose shares we own, without prescriptive policies or rules, assessing matters on a case-by-case basis. As part of maximising long-term performance for the benefit of the Company's shareholders, the managers consider Environmental, Social and Governance (ESG) factors as part of the investment case. The degree to which ESG concerns have an impact on a potential investment decision is qualitative and depends upon the managers' subjective understanding of the issues.

Details of the Company's policy on socially responsible investment can be found under Corporate Governance and Stewardship on page 25 of the Annual Report and Financial Statements. A document outlining Baillie Gifford's Governance and Sustainability principles can be found at www.bailliegifford.com.

Changes to the Board

Two new Directors joined the Board during the year - Angela Lane, whose appointment was ratified by shareholders at last year's AGM and Richard ('Joe') Studwell, whose appointment falls to be ratified by shareholders at this year's AGM. Their respective biographies are contained on page • of the Annual Report and Financial Statements.

At the conclusion of your Company's AGM, I will be standing down from the Board. Having been Chairman since 2010 and a Director since 2003, I believe it is right that others take on the opportunity to direct the Company going forward. I have greatly enjoyed my time on the Board and appreciated working with some very talented fellow Directors. The Board has determined that Angus Macpherson will become the Company's next Chairman. He has very relevant skills and experience and I wish him and the Board continued success.

Outlook

There are currently an increasing number of global political, social and economic issues to worry investors, but there are also a large number of companies in our universe that continue to grow successfully and can be bought at reasonable valuations. The most pertinent issue for our markets is the disagreement between the USA and China regarding tariffs on goods in and out of the region. China is not giving in and is now using the Renminbi exchange rate to offset some of the rising costs to Chinese exporters. A more localised issue is the political disturbance in Hong Kong and whether it can be resolved to the satisfaction of all parties.

Aside from the Asian region, UK shareholders are focussed on Brexit. The Board, along with Baillie Gifford, has considered the uncertainties surrounding Brexit and concluded that they will not have a material impact on the Company and that the Company's main Brexit-related exposure is to fluctuations in exchange rates which will have an impact on both the value of the Company's investments and borrowings denominated in currencies other than sterling.

The Board believes that the managers are focussed on both the risks and the rewards in the portfolio, and that the portfolio is well positioned to weather potential externally generated short term volatility, whilst providing shareholders with good returns over the longer term.

Annual General Meeting

This year's AGM will take place on 12 November 2019 at the offices of Baillie Gifford & Co in Edinburgh at 11.00am. I would encourage shareholders to arrive by 10.50am to allow time to register. The managers will make a presentation and, along with the Directors, will answer any questions from shareholders. I hope to see as many of you as possible there.

Jean Matterson

Chairman

5 September 2019

^*Calculated on a total return basis. Source: Baillie Gifford/Refinitiv and relevant underlying index providers.

See Disclaimer at the end of this announcement.

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Past performance is not a guide to future performance.

Managers' Review

Overview

The current age of uncertainty might be defined thus: the old order has been undermined, but the shape of the new one is not yet clear. What determines how it turns out? Transformational technology? The sudden rise of China? Perhaps the consequences of unorthodox monetary policy? Most likely a combination of all these and more. What is certain is that, even amidst this upheaval, the search for growth and the discovery of and investment in great companies will enable outperformance for the benefit of shareholders.

At a company level we see huge opportunities and risks. Companies appear from nowhere to become multi-billion USD enterprises while others see what was a unique competitive advantage disappear overnight. As an example, our largest holding at the start of the year, Sunny Optical Technology, fell over 60% from peak to trough, as new algorithms reduced the need for precision lenses in smartphone cameras, eroding its competitive advantage. In China, Tencent and Baidu have found previously unassailable online advertising business models successfully attacked by new competitors. In four years, TikTok has gone from having less than 2% of China's social/media advertising budget to 40%-plus in 2019, making it larger than Tencent in this sphere.

If we reject the risk and uncertainty arising from investment in times of rapid change, we will lose the opportunity to outperform; hence our continued willingness to look for great individual company return opportunities. The existence of risk and uncertainty, however, means that we will inevitably make what, in hindsight, appear to be mistakes and that many of our investments will be less successful than we had initially hoped. Our approach is to back our current holdings, which we hope will outperform in the longer term, whilst continuously searching for stocks which have the potential to deliver significantly enhanced returns over longer time frames.

In the year to 31 July 2019, on a total return basis, the Company's NAV and share price decreased by 1.9%^* and 11.8%^* respectively. This compares unfavourably against the Company's comparative index, the MSCI All Country Asia ex Japan Index (in sterling terms), which rose by 4.2^* %.

Over the course of our latest financial year, market performance can be divided into two distinct halves. In late 2018, many businesses previously doing very well were severely hampered by global trade wars, a liquidity crunch and technology in transition. This hurt the share prices of many of our holdings and the portfolio lost significant value. In hindsight, we were late in selling several of our previous winners, including Sunny Optical Technology, Macronix and Geely Automobile; albeit still making a significant return on these investments during the period when we were investors. In the current calendar year, several of our holdings, which hitherto had not performed, started on their own growth course and continue to do well. For example, SEA Limited in South-East Asia, launched a new hit game Free Fire, which rapidly garnered 450 million downloads and 50 million daily active users, having a very positive impact on its share price.

The risks and opportunities from increased disruption are here to stay. In our view, the market's focus on geopolitics and capital flows misses the bigger picture, that of a global rise in digital penetration, technological change and the rise of the Asian middle class. These fundamentals will underpin growth in the region for decades to come. We believe that the best way to invest in this rapidly-changing growth market is to find the best long-term growth companies.

Philosophy

We are excited by the future. We are growth investors looking for rapidly growing companies. Believing that time is on our side, we are patient. We seek out companies whose business models and management teams are very likely to fulfil their ambitions. We are looking for areas where our ideas give us an edge on the market over a longer time frame.

When thinking about growth, we look for companies that have the potential to increase their revenue and earnings at around 15% per annum for the next five years or longer, and for opportunities where we feel this potential has not been fully recognised by the market. Our approach may lead to significant investment concentration in certain areas of the market depending upon the immediate outlook for different countries and sectors. As well as growth potential, the corporate characteristics we look for include sustainable competitive advantages, attractive financials and good management. We also target stocks where a wider range of positive potential outcomes may not be recognised by the market but which seem likely to enhance their profitability.

Our starting premise is how we think the world and individual countries may change over the next three, five and ten years plus, in every area of life - economically, socially and politically - and the impact that technology might have on these trends. When we look at a company and think about what the market size of its industry might be, we ask ourselves what the current rate of growth is, how this industry could change and whether there are additional opportunities for growth in adjacent markets that the company could enter. This gives us a rough estimate of the potential total addressable market for a company and its products and its growth potential. We examine the competitive dynamics of the industry and try to understand how these are likely to change. We ask whether the industry is improving and whether the likely position of the company within it is also changing for the better. Lastly, we look for a management team that we believe has the ability, ambition and integrity to deliver on its promise. The ideal team has a vision of the future and knows how, in its own small space, it can realise this vision.

The background to this process, however, is inevitably one of uncertainty. Both error and chance play a huge role in any eventual outcome: hence the way the portfolio is diversified by country, sector and industry. More importantly we understand that not all the companies we choose to invest in will realise their potential value and growth potential. We will remain committed to and back our winners and reduce and sell our losers. Ideally, we will end up with a small group of stocks which, due to compounding growth and profit, will generate significant longer-term returns. These will be counterbalanced by a potentially larger group that have not reached this level of performance. Due to smaller holdings sizes in this latter group and the benefits of enhanced returns from our successful investments, we aim to deliver outperformance over time.

The growth characteristics of the current portfolio remain strong, with historic earnings growth at 18.0% and one-year forecast earnings growth of 33.1%, versus 10.7% and 8.5% respectively for the comparative index. The portfolio's estimated price-to-earnings ratio for the current year is 18.7x versus 13.2x for the comparative index. Over the longer term, we believe the higher growth potential of our holdings more than justifies this additional multiple. The portfolio now has a slightly lower proportion of larger capitalised stocks compared to last year with 21.8% of the portfolio invested in companies capitalised below £1 billion and a further 33.0% in companies with a market capitalisation of less than £5 billion; this compares with 0.1% and 13.5% respectively in the comparative index. Active share^* is 84% and turnover for the year was 23.3%. The portfolio has invested gearing of 8.3%.

Finally, we continue to believe that the rapid development of technology is creating a fundamental change in market behaviour, with digitalisation driving profound changes in economic and political systems, businesses, consumer habits and behaviours. The number of sectors and industries that are becoming digitalised and connected is increasing rapidly. There is growing awareness of these changes across the globe. Artificial Intelligence ('AI') is now taken for granted and the concept of electric rather than gasoline-powered cars is now considered as a commercial inevitability rather than a distant vision.

Review

We actively seek out the big winners, the stocks that can give us asymmetric returns. Over the last year this approach has largely played out as intended, with a few of our chosen stocks making enormous gains. Interestingly, the top five positive contributors to relative returns versus the comparative index in the year were all stocks we had either bought (SEA Limited, Li Ning, Accton Technology, Ping An Bank) or sold (Baidu) in the prior financial year, supporting our view of 2018 as a year of change.

Over the year we reduced exposure to some of our larger positions in the Information Technology sector. Our sector exposure here now accounts for 19.6% of the portfolio, down from a restated 31.5% a year ago - restated to reflect the reclassification by MSCI of some stocks into different commercial sectors, mainly Communication Services. Despite this, Information Technology continues to be our largest absolute sector position. Over the course of the financial year, it had an average return of minus 7.5%, significantly underperforming the broader index return of a 4.2% gain and the sector return of 3.7%. SEA Limited, the Singapore-based e-commerce and gaming company, rose 167% and become our largest holding following a re-rating sparked by its new hit game Free Fire, which is likely to deliver close to a U$1 billion of revenue for it in 2019. This was one of the holdings reclassified to the Communication Services sector, resulting in our exposure here returning 67.5% versus 14.0% for the sector. We further reduced our holding in Tencent, reflecting our concern that the company's previous leadership in the WeChat social platform is being threatened by ByteDance. We sold Sunny Optical Technology, our biggest performance detractor of the year, over concerns that new AI algorithms were reducing its leadership advantage in high-precision lenses and threatening margins. We also sold Macronix and reduced SK Hynix as the global semiconductor memory market looked set for an extended downturn.

The Consumer Discretionary sector is our second largest sector exposure at 16.6%, down from 20.5% in the previous year. As economic growth within the region recovers, the focus on the Asian consumer and the consequent growth opportunities has the potential to generate increased investor interest. Li-Ning, a domestic Chinese online footwear brand performed very well, rising 146% on the back of a recovery in sportswear sales. We reduced our holding in Geely Automobile as the Chinese car maker is undergoing a prolonged restructuring. Despite significant share price volatility, we have broadly maintained our holdings in JD.com and Alibaba.

The Financial sector represents the third largest sector weighting in the portfolio at 16.4%. We sold Mumbai-based IndusInd Bank after it had performed well over several years. We remain concerned that rapid credit growth may lead to an increase in non-performing loans, and we decided to sell before a management transition next year.

On the negative side, South Korea was our worst performing market, falling 20% and detracting 450 basis points from the portfolio's overall performance. A combination of factors, including trade disputes with China and Japan, weak semiconductor and smartphone sales and negative sentiment towards biotech companies all affected our diverse range of holdings in the country. We had only two contributors to positive performance: software company Douzone Bizon and Samsung battery power subsidiary Samsung SDI. We have maintained most of our holdings and we are confident of their potential for future growth despite the poor short-term stock performance.

Our Vietnamese exposure hurt as this frontier market suffered from liquidity outflows and reduced investor appetite for risk in this market. We continue to be attracted to the long-term outlook for the country and believe that its economic prospects have been bolstered by the US trade conflict with China. Our Vietnam holdings fell 6.4% on average during the year. We see the Vietnamese economy as an under-appreciated growth story.

In terms of the countries where we invest, our Hong Kong and China weighting decreased from 40.2% to 34.4%. It remains the largest country weighting in the portfolio, followed by South Korea at 19.0%.

Environmental, Social and Governance

As growth investors, we are attracted to companies whose products will benefit from strong future demand. These companies not only have to produce better and cheaper products and services than their competitors, but they must also be alert for changes in the outlooks and attitudes of the societies of which they form a part.

Companies that fail to keep pace with the societies they serve tend to fail, either as a result of falling consumer demand for their products or because of government intervention in their activities. When taking investment decisions, we consider the potential positive and negative impact on society that these companies may have, and how their commercial activities may be perceived by their external stakeholders in the future.

For our long-term investments to be successful, the companies in which we invest must add value to society. This can be achieved in various ways. For example, the products of our regenerative biotech companies may allow many to benefit from otherwise unachievable medical cures; our internet companies provide goods and services at prices and in quantities that were previously beyond the reach of many; and our technology holdings are helping to enable the greatest and most rapid increase in human connectivity and information availability on record.

Lastly, it is very important to us that the interests of minority shareholders must be upheld; we remain careful to make sure our interests as investors are aligned with those of majority shareholders and owners.

Outlook

There is significant potential for positive returns from the Asia Pacific region in the coming years. Our focus remains on investment in individual stocks which will benefit from the economic, social and technological changes in evidence across the region. In the near term, the recent market noise over trade wars, slowing global growth and a rising US dollar are obscuring the underlying reality of strong, consistent economic growth and social opportunity within the region. When the market looks again at fundamentals in Asia, we expect it to see healthy growing economies, with attractively priced companies and undervalued currencies, all creating significant investment opportunities for the Company, and all to the benefit of our shareholders.

^* Source: Baillie Gifford/Refinitiv and relevant underlying index providers. See disclaimer at the end of this announcement.

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Past performance is not a guide to future performance.

 

Income Statement (unaudited)

	For the year ended 31 July 2019			For the year ended 31 July 2018 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(losses)/gains on investments	-	(3,116)	(3,116)	-	22,492	22,492
Currency losses	-	(781)	(781)	-	(49)	(49)
Income (note 2)	2,473	-	2,473	2,032	-	2,032
Investment management fee (note 3)	(1,297)	-	(1,297)	(1,396)	-	(1,396)
Other administrative expenses	(542)	-	(542)	(534)	-	(534)
Net return before finance costs and taxation	634	(3,897)	(3,263)	102	22,443	22,545
Finance costs of borrowings	(440)	-	(440)	(275)	-	(275)
Net return on ordinary activities before taxation	194	(3,897)	(3,703)	(173)	22,443	22,270
Tax on ordinary activities	(186)	-	(186)	(155)	-	(155)
Net return on ordinary activities after taxation	8	(3,897)	(3,889)	(328)	22,443	22,115
Net return per ordinary share (note 4)	0.01p	(6.65p)	(6.64p)	(0.60p)	40.90p	40.30p

The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and comprehensive income for the year.
 

Balance Sheet (unaudited)

	At 31 July 2019		At 31 July 2018 (audited)
	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		219,984		221,074
Current assets
Debtors	636		1,065
Cash and cash equivalents	3,627		3,491
	4,263		4,556
Creditors
Amounts falling due within one year (note 5)	(20,897)		(20,750)
Net current liabilities		(16,634)		(16,194)
Net assets		203,350		204,880
Capital and reserves
Share capital		5,903		5,833
Share premium account		20,063		17,774
Capital redemption reserve		20,367		20,367
Capital reserve		153,382		157,279
Revenue reserve		3,635		3,627
Shareholders' funds		203,350		204,880
Net asset value per ordinary share		344.50p		351.26p
Ordinary shares in issue (note 6)	58,565,364		54,868,308

 

Statement of Changes in Equity (unaudited)

For the year ended 31 July 2019

	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve† £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 August 2018	5,833	17,774	20,367	157,279	3,627	204,880
Net return on ordinary activities after taxation	-	-	-	(3,897)	8	(3,889)
Ordinary shares issued (note 6)	70	2,289	-	-	-	2,359
Shareholders' funds at 31 July 2019	5,903	20,063	20,367	153,382	3,635	203,350

For the year ended 31 July 2018 (audited)

	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve† £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 August 2017	5,426	3,166	20,367	134,836	3,955	167,750
Net return on ordinary activities after taxation	-	-	-	22,443	(328)	22,115
Ordinary shares issued	407	14,608	-	-	-	15,015
Shareholders' funds at 31 July 2018	5,833	17,774	20,367	157,279	3,627	204,880

†      The Capital Reserve balance at 31 July 2019 includes investment holding gains on fixed asset investments of £62,384,000 (31 July 2018 - gains of £70,358,000).

 

Cash Flow Statement (unaudited)

	For the year ended 31 July 2019		For the year ended 31 July 2018 (audited)
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation		(3,703)		22,270
Net losses/(gains) on investments		3,116		(22,492)
Currency losses		781		49
Finance costs of borrowings		440		275
Overseas withholding tax		(183)		(152)
Changes in debtors and creditors		(177)		111
Cash from operations ‡		274		61
Interest paid		(435)		(247)
Net cash outflow from operating activities		(161)		(186)
Cash flows from investing activities
Acquisitions of investments	(53,465)		(85,500)
Disposals of investments	51,412		66,468
Net cash outflow from investing activities		(2,053)		(19,032)
Cash flows from financing activities
Shares issued (note 6)	2,909		14,465
Borrowings drawn down	492		5,717
Borrowings repaid	(972)		(395)
Net cash inflow from financing activities		2,429		19,787
Increase in cash and cash equivalents		215		569
Exchange movements		(79)		40
Cash and cash equivalents at 1 August		3,491		2,882
Cash and cash equivalents at 31 July		3,627		3,491

‡   Cash from operations includes dividends received of £2,231,000 (2018 - £1,998,000) and interest received of £144,000 (2018 - £30,000).
 

List of Investments as at 31 July 2019 (unaudited)

Name	Country	Business	Value £'000	% of total assets ‡
SEA Limited ADR	Singapore	Internet gaming and e-commerce	18,383	8.2
Alibaba Group ADR	HK/China	Online and mobile commerce	11,834	5.3
Li Ning	HK/China	Sportswear apparel supplier	9,182	4.1
Accton Technology	Taiwan	Server network equipment manufacturer	7,626	3.4
Tencent Holdings	HK/China	Online gaming and social networking	7,295	3.3
Samsung SDI	Korea	Electrical equipment manufacturer	7,196	3.2
Ping An Insurance H Shares	HK/China	Life insurance provider	6,468	2.9
CNOOC Ltd	HK/China	Oil and gas producer	6,440	2.9
Dragon Capital Vietnam Enterprise   Investments	Vietnam	Vietnam investment fund	5,905	2.6
Ping An Bank A Shares	HK/China	Consumer Bank	5,825	2.6
JD.com ADR	HK/China	Online mobile commerce	5,105	2.3
Kingdee International Software	HK/China	Enterprise management software distributor	5,062	2.3
Koh Young Technology	Korea	3D inspection machine manufacturer	4,864	2.2
ICICI Bank ADR	India	Retail and corporate bank	4,061	1.8
SK Hynix	Korea	Electronic component and device manufacturer	4,031	1.8
PT Aneka Tambang	Indonesia	Nickel miner	3,996	1.8
PT Vale Indonesia	Indonesia	Nickel miner	3,712	1.7
Douzone Bizon	Korea	Enterprise resource planning software developer	3,651	1.6
HDBank	Vietnam	Consumer Bank	3,494	1.6
Info Edge	India	Multi-service online review aggregator	3,346	1.5
BizLink Holding	Taiwan	Electrical components manufacturer	3,307	1.5
Jadestone	Singapore	Oil and gas explorer and producer	2,937	1.3
Military Commercial Joint Stock Bank	Vietnam	Retail and corporate bank	2,935	1.3
Nickel Mines	Indonesia	Base metals miner	2,924	1.3
Vincom	Vietnam	Property developer	2,812	1.3
Zai Lab ADR	HK/China	Biopharmaceutical company	2,609	1.2
AviChina Industry & Technology H Shares	HK/China	Aircraft and aircraft parts manufacturer	2,559	1.1
Genexine	Korea	Therapeutic vaccine researcher and developer	2,548	1.1
Bharat Electronics	India	Indian defence company	2,392	1.1
Reliance Industries	India	Petrochemical company	2,388	1.1
Brilliance China Automotive	HK/China	Minibus and automotive components   manufacturer	2,335	1.0
Korea Zinc	Korea	Non-ferrous metals smelter and manufacturer	2,238	1.0
Geely Automobile	HK/China	Automobile manufacturer	2,212	1.0
Precision Tsugami	HK/China	Industrial machinery manufacturer	2,101	0.9
JHL Biotech Convertible Bondu	Taiwan	Biopharmaceutical company	2,036	0.9
ICICI Lombard	India	General insurance provider	2,031	0.9
TCI	Taiwan	Food producer	1,986	0.9
Cowell Fashion	Korea	Apparel manufacturer	1,901	0.9

List of Investments as at 31 July 2019 (unaudited) (ctd)

Name	Country	Business	Value £'000	% of total assets ‡
Mitac Holdings	Taiwan	GPS and server products distributer	1,899	0.8
Enzychem Lifesciences Corp	Korea	Biopharmaceuticals company	1,837	0.8
Hoa Phat Group	Vietnam	Steel and related products manufacturer	1,804	0.8
Bioneer	Korea	Drug researcher and developer	1,799	0.8
NCSOFT	Korea	Online games developer	1,784	0.8
Samsung Electronics	Korea	Memory, phones and electronic components   manufacturer	1,738	0.8
Basso Industries	Taiwan	Powerdrills manufacturer	1,690	0.8
Cafe24	Korea	Web service provider	1,610	0.7
Saigon Securities	Vietnam	Brokerage and securities company	1,578	0.7
Kingpak Technology	Taiwan	Semiconductor packaging supplier	1,556	0.7
Jianpu Technology ADR	HK/China	Platform for financial products	1,547	0.7
Techtronic Industries	HK/China	Power tool manufacturer	1,460	0.7
Petro Matad	Mongolia	Oil explorer and producer	1,422	0.6
Medy-Tox	Korea	Global biopharmaceutical company	1,376	0.6
Chinasoft International	HK/China	Information technology provider	1,374	0.6
Doosan Bobcat	Korea	Construction and mining machinery     manufacturer	1,348	0.6
NIO Inc	HK/China	Electric Vehicle original equipment manufacturer	1,324	0.6
Kansai Nerolac Paints	India	Paint manufacturer	1,223	0.5
ICICI Prudential Life Insurance	India	Life insurance provider	1,164	0.5
Vinh Hoan Corporation	Vietnam	Food Producer	1,097	0.5
Intron Biotechnology	Korea	Antibiotics drug researcher	1,088	0.5
Mahindra CIE Automotive	India	Truck parts manufacturer	1,034	0.5
GlobalWafers	Taiwan	Semiconductor wafers manufacturer	1,031	0.5
3SBIO	HK/China	Biologics company	1,005	0.5
AU Small Finance Bank	India	Consumer finance bank	974	0.4
CrystalGenomics	Korea	Proteomic drug discovery investigator	896	0.4
Taiwan Semiconductor Manufacturing	Taiwan	Semiconductor foundry	895	0.4
SDI Corporation	Taiwan	Stationery and lead frames for   semiconductors manufacturer	882	0.4
JHL Biotechu	Taiwan	Biopharmaceutical company	878	0.4
Hanall Biopharma	Korea	Pharmaceutical company	848	0.4
Max Financial Services	India	Life insurance provider	768	0.3
Quess Corp	India	Human resources company	750	0.3
L&C Bio	Korea	Medical equipment manufacturer	736	0.3
Dilip Buildcon	India	Construction company	703	0.3
Yeah1 Group Corporation	Vietnam	Media company	655	0.3
Binh Minh Plastics Joint Stock Company	Vietnam	Plastic piping manufacturer	647	0.3
LG Innotek	Korea	Mobile phone component manufacturer	582	0.3
TTY Biopharm	Taiwan	Specialist genetics manufacturer	534	0.2

List of Investments as at 31 July 2019 (unaudited)

Name	Country	Business	Value £'000	% of total assets ‡
BitAuto Holdings Ltd ADR	HK/China	Automobile pricing website	507	0.2
ST Pharm	Korea	Manufacturer of specialist pharmaceutical   ingredients	503	0.2
Aslan Pharmaceuticals	Singapore	Biosimilar drug developer	486	0.2
Haier Electronics Group	HK/China	Washing machine and water heater manufacturer	480	0.2
Aslan Pharmaceuticals ADR	Singapore	Biosimilar drug developer	387	0.2
China Shineway Pharmaceuticals	HK/China	Chinese and Western medicines company	303	0.1
Cox & Kings India	India	Travel agent	51	0.0
Cox & Kings Financial Service	India	Non-banking financial services	4	0.0
Philtown Propertiesu	Philippines	Property Developer	-	0.0
Total Investments			219,984	98.3
Net Current Assets			3,771	1.7
Total Assets			223,755	100.0

HK/China denotes Hong Kong and China.

‡ For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

^u Denotes unlisted investment.

 

Distribution of Total Assets‡ (unaudited)

Geographical Analysis

		At 31 July 2019 %	At 31 July 2018 %
Equities:	Hong Kong and China	34.4	40.2
	Korea	19.0	21.2
	Taiwan	10.9	11.3
	Singapore	9.9	4.1
	Vietnam	9.4	8.9
	India	9.3	8.4
	Indonesia	4.8	3.4
	Mongolia	0.6	0.7
Total equities		98.3	98.2
Net current assets		1.7	1.8
Total assets		100.0	100.0

Sectoral Analysis

		At 31 July 2019 %	At 31 July 2018 %
Equities:	Consumer Discretionary	16.6	20.5
	Communication services	14.3	10.8
	Consumer Staples	1.4	-
	Energy	5.9	2.6
	Financials	16.4	16.3
	Health Care	8.9	8.3
	Industrials	6.8	2.4
	Information Technology	19.6	31.5
	Materials	7.1	4.7
	Real Estate	1.3	1.1
Total equities		98.3	98.2
Net current assets		1.7	1.8
Total assets		100.0	100.0

‡    For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

 

Notes to the Condensed Financial Statements (unaudited)

There are no dilutive or potentially dilutive shares in issue.

1.	The unaudited Financial Statements for the year to 31 July 2019 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' The accounting policies adopted are consistent with those of the previous financial year.
		31 July 2019 £'000			31 July 2018                      (audited) £'000
2.	Income from Investments
	Overseas dividends	2,225			2,002
	Overseas interest	104			-
		2,329			2,002
	Other income
	Deposit interest	144			30
	Total income	2,473			2,032
3.	The Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager (AIFM) and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting have been further delegated to Baillie Gifford Overseas Limited. The Managers may terminate the Management Agreement on six months' notice and the Company may terminate on three months' notice. With effect from 1 January 2019 the annual management fee is 0.75% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. In the periods before 1 January 2019 covered by this report, the fee was 0.95% on the first £50 million, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable quarterly.
4.			31 July 2019 £'000	31 July 2018 (audited) £'000
	Net return per ordinary share
	Revenue return on ordinary activities after taxation		8	(328)
	Capital return on ordinary activities after taxation		(3,897)	22,443
	Total return		(3,889)	22,115
	Weighted average number of ordinary shares in issue		58,565,364	54,868,308
	The figures for net return per ordinary share are based on the above totals for revenue and capital and the weighted average number of ordinary shares in issue during the year.
5.	The Company has a one year multi-currency revolving credit facility of up to £30 million with The Royal Bank of Scotland International Limited (31 July 2018 - up to £30 million) which expires on 15 March 2020. At 31 July 2019 there were outstanding drawings of £10,000,000 and US$12,739,900 at interest rates of 1.28492% and 2.9272% respectively (31 July 2018 - £10,000,000 and US$13,358,000 at interest rates of 1.08075% and 2.79063% respectively), maturing in September 2019. The main covenants relating to the loans are that borrowings should not exceed 20% of the Company's adjusted net asset value and the Company's net asset value should be at least £80 million. There were no breaches in the loan covenants during the year.

Notes to the Condensed Financial Statements (unaudited) (ctd)

6.	In the year to 31 July 2019, the Company issued 700,000 ordinary shares (nominal value of £70,000, representing 1.2% of the issued share capital at 31 July 2018) at a premium to net asset value, raising net proceeds of £2,359,000 (2018 - 15,015,000). No shares were bought back during the year and no shares are held in treasury. At 31 July 2019 the Company had authority to buy back 8,743,259 ordinary shares on an ad hoc basis and to allot or sell from treasury 5,132,728 ordinary shares without application of pre-emption rights. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve.
7.	The Company incurred transaction costs on purchases of £101,000 (2018 - £110,000) and on sales of £109,000 (2018 - £336,000), being £210,000 (2018 - £446,000) in total.
8.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 July 2019. The financial information for 2018 is derived from the financial statements for 2018 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2018 accounts; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498 (2) or 498(3) of the Companies Act 2006. The statutory accounts for 2019 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have advised the Company that they do not expect their report on the 2019 statutory accounts to include any modification or emphasis of matter statements.
9.	The Annual Report and Financial Statements will be available on the Company's page on the Managers' website www.pacifichorizon.co.uk‡ on or around 8 October 2019.

‡      Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Glossary of Terms and Alternative Performance Measures (APM)

Total Assets

The total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Shareholders' Funds and Net Asset Value

Also described as shareholders' funds, Net Asset Value (NAV) is the value of all assets held less all liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

Net Liquid Assets

Net liquid assets comprise current assets less current liabilities, (excluding borrowings).

Discount/Premium (APM)

As stock markets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Total Return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

Glossary of Terms and Alternative Performance Measures (APM) (Ctd)

Ongoing Charges (APM)

The total recurring expenses (excluding the Company's cost of dealing in investments and borrowing costs) incurred by the Company as a percentage of the daily average net asset value, as detailed below.

	2019 £'000	2018 £'000
Investment management fee	1,297	1,396
Other administrative expenses	542	534
Total Expenses	1,839	1,930
Average net asset value	186,150	189,864
Ongoing charges	0.99%	1.02%

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Invested gearing is borrowings at par less cash and brokers' balances expressed as a percentage of shareholders' funds.

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Active Share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Compound Annual Return (APM)

The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compound value at the start of each year.

Unlisted Company

An unlisted company means a company whose shares are not available to the general public for trading and are not listed on a stock exchange.

Third Party Data Provider Disclaimer No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom. No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate. Without limitingmant the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein. MSCI Index Data Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an 'as is' basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the 'MSCI Parties') expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (www.msci.com).

Pacific Horizon Investment Trust PLC (Pacific Horizon) aims to achieve capital growth through investment in the Asia-Pacific region (excluding Japan) and in the Indian Sub-continent. The Company has total assets of £223.8 million (before deduction of loans of £20.4 million) at 31 July 2019.

Pacific Horizon is managed by Baillie Gifford & Co Limited, the Edinburgh based fund management group.

Past performance is not a guide to future performance. Pacific Horizon is a public listed company and is not authorised or regulated by the Financial Conduct Authority. The value of its shares and any income from those shares can fall as well as rise and you may not get back the amount invested. Pacific Horizon invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. Pacific Horizon invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. Shareholders in Pacific Horizon have the right to vote every five years, on whether to continue Pacific Horizon, or wind it up. If the shareholders decide to wind the Company up, the assets will be sold and you will receive a cash sum in relation to your shareholding. The next vote will be held at the Annual General Meeting in 2021. You can find up to date performance information about Pacific Horizon on the Pacific Horizon page of the Managers' website at www.pacifichorizon.co.uk.†

†      Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

5 September 2019

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: [phone]

Roland Cross, Four Broadgate

Tel: [phone] or 07831 401309

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